In an interview with the Yomiuri, BoJ Governor Kazuo Ueda indicated that the central bank could have enough information and data by the end of the year to judge whether wages will continue to rise at a pace that is necessary to achieve the 2% price stability target.

However, back in April, Governor Ueda indicated that next year’s annual wage bargaining will likely become a key factor in deciding the future of monetary policy but the BoJ could make a decision on whether the 2% inflation target accompanied by wage growth is achievable at an earlier point depending on the data that becomes available beforehand.

The governor’s latest remark is a repeat of his previous comments saying the central bank is of the view that it is ready to normalise its policies once conditions are satisfactory for such moves. Instead, the latest comment was likely made to combat speculative moves in the FX market, which could act as a hindrance to monetary policy.

As long as markets are pricing in a Fed rate cut sometime next year, the BoJ will likely continue with the current monetary easing policies. We continue to expect that the BoJ will likely start the normalisation process by exiting from the YCC framework in CY25, once the global economy enters the next cyclical recovery.

The BoJ will likely remain cautious of any major policy changes as long as the central bank maintains that “there are extremely high uncertainties for Japan's economic activity” and to not repeat past mistakes of premature policy tightening, especially as the government is maintaining a strong commitment to the Abenomics policy framework to pull Japan completely out of deflation.

On the other hand, the risk scenario is if the global economy remains resilient and markets stop pricing policy rate cuts by key central banks next year, the BoJ could start the normalisation process in CY24 under the judgement that the global economy will remain strong.

In an interview with the Yomiuri, BoJ Governor Kazuo Ueda indicated that the central bank could have enough information and data by year-end to judge whether wages will continue to rise at a pace that is necessary to achieve the 2% price stability target. Markets reacted to the interview as a hint that the central bank could start the normalisation process much earlier than previously anticipated.

However, Governor Ueda has made similar remarks before, and the latest comment is likely not a change in the central bank’s or the governor’s views. Back in April, Governor Ueda indicated during his press conference that next year’s annual wage bargaining will likely become a key factor in deciding the future of monetary policy, but the BoJ could make a decision on whether the 2% inflation target accompanied by wage growth is achievable at an earlier point depending on the data that becomes available beforehand.

The governor’s latest remark is a repeat of his previous comments saying the central bank is of the view that it is ready to normalise its policies once conditions are satisfactory for such moves. The remark was likely made to combat speculative moves in the FX market, which could act as a hindrance to monetary policy. In other words, the governor’s statement is likely similar to those typically made by the Minister of Finance and other MoF officials where they issue warnings on volatility in the FX market verbally but do not implement any actual intervention moves.